Sunny Hundal has attempted a tweak of the nose of those of us on the left who think that Fiscal policy matters. I don’t have a lot of time today, so will be brief in response, and apologise in advance to Sunny for not engaging further past this.
In passing I will say it’s a little tiresome of Sunny to frame his argument by claiming that people who disagree with him believed Osborne was a genius. As Anthony Painter and I said when introducing ‘In The Black':
“The chancellor’s autumn statement showed conclusively that George Osborne has messed up. His model of recovery – that export-led growth and private investment would step in as the state withdrew – was wrong. And he failed to allow enough flexibility should things not go as planned. The result is a faint but worrying reflection of the European periphery, where new austerity is piled on existing austerity in a desperate scrabble to hold on to fiscal targets.
If this is claiming that George Osborne is a genius, then I am a banana. We go on to say:
Nevertheless, these mistakes – and their consequences – do not mean a Labour alternative wins popular support by default. Indeed, having failed to eliminate the structural deficit by the next election, the Tories will argue that the party with the stomach for reducing borrowing further is the one deserving support. The more Osborne’s plan fails, the more the next election becomes dominated by the deficit. Faced with this, Labour must take paradoxical public attitudes on the economy seriously.”
This is effectively precisely what has happened: Osborne has failed, and has responded to his failure by pointing out that the deficit is still there, and still needs to be dealt with. What’s more, the more he fails, the greater the deficit faced by the next government will be, and there will likely be even smaller room for fiscal stimulus1.
Anyway, now we’ve tidied that up, let’s move on to Sunny’s more ‘substantive’ questions. He asks:
“Since Osbornomics has comprehensively blown up, Black Labour have avoided answering two key questions:
1) why should Labour sign up to the kind of austerity now shown to be choking off our economic recovery, and keeping millions of people jobless?
2) if you think deficit reduction is important when times are good (agreed, with caveats), why were you promoting that message at a time when the focus should have been on growing the economy, not more cuts?”
The answer to Q1 is obvious enough. No.
It’s an odd question, mind, sort of “Why do you want to start beating your wife?” So please see a footnote for an attempt to answer more fully.2
Then things get a bit odd.
Having slammed those of us who say that Labour needs a deficit reduction policy with greater clarity, Sunny reveals parenthetically that he actually agrees with us, but simply thinks we should have stayed silent about what a Labour government might actually do:
2) if you think deficit reduction is important when times are good (agreed, with caveats), why were you promoting that message at a time when the focus should have been on growing the economy, not more cuts?
After noting that it’s nice that Sunny actually agrees with us despite all the huffing and puffing in his article, there are three related answers to his question.
The first is that I think it’s good policy. This is going to be a major challenge for the next Labour government, and it’s important we address it.
The second is that in general, I think it’s a bad idea to lie, either by omission or commission, about what a future Labour government would have to do to deal with the deficit.
Today, in 2013, we have almost no growth even with almost nil interest rates. That indicates one set of policy responses. In all likelihood, by 2015, the economy will be growing. That indicates a different set of policy responses. Indeed, even Sunny accepts (with some unknown caveats) that a Labour government should reduce deficits when the economy is growing. This raises the question of how, when and to what extent. I think answering these questions matters.3
Further, if the next Labour government are going to inherit a tough fiscal situation with lowish growth and therefore a need to find ways to reduce spending or increase taxation (or more likely both) as a proportion of GDP, while pursuing pro-growth policies like encouraging business investment, infrastructure and skills, then I think it’s wise to explain to people why this matters.
Otherwise, a perception might build up that a Labour government would not have to hold down existing public spending, would not face pressure on public services budgets, would be able to reverse most of the cuts the government has introduced, and wouldn’t face difficult decisions on some budgets in order to create space for pro-growth policies elsewhere.
Not being clear about the decisions of the future may work in opposition, though it doesn’t really deserve to, but it can never work in government. If you want to see where that takes you, look at the fate of centre-left governments elected on such a prospectus in Denmark and France. Both are cutting public services spending in order to fund business support and meet their fiscal targets.
On the final, narrowly political point, then like my friend Anthony Painter, I do wonder if Sunny has read ITBL recently, because we address precisely his point:
“Some may feel that opposition parties should avoid being pinned down on their plans too early in the electoral cycle. While this may be good political advice under normal circumstances, in the current case it is highly questionable. It is precisely the vagueness of Labour’s position over its short to medium term plans for the deficit that confirms the voters’ worst suspicions about the Party’s lack of commitment to addressing the fiscal crisis.”
Sunny may feel that this is wrong, that the voters in fact don’t care about our fiscal plans, and that it won’t be a factor in the election campaign. Frankly, he doesn’t know, and neither do I, if that is definitely the case. It is possible that the government failure is so bad that an attack on Labour for its failure to be honest about what it would do in Government meets with only a shrug with swing voters.
I don’t think it’s likely, because I think such an attack does chime with what people think about the economic weakness of the Labour party record, that a plurality of people still blame Labour for the current economic mess, and I am nervous that after 24 months of unmitigated failure Cameron and Osborne are still ahead of our team on Economic trust and effectively level pegging on economic policy.
In such circumstances, I don’t think Sunny’s apparent advice, that Labour should aim to tighten the deficit in government, but not set out how, or why, or under what circumstances it will do so, is either a recipe for good opposition or good government. Nor do I think that relying on the continued abject failure of your opponents is a wise political strategy, even if such failure appears likely.
I will remind Sunny though, since he says he misses childish jibes, that at the last election he voted for a party that supported a programme which more or less exactly followed the lines that In the Black Labour proposes.
Clearly such a message has some political appeal.
- because debt as a share of GDP will be high, growth will be low and -more speculatively- other economies around the world will likely be recovering by that stage, so money may have more attractive homes than UK [↩]
- Given than that the question is loaded so heavily as to make it almost meaningless, It’s probably worth taking the time to consider two possible questions it might mean. ‘Why should Labour sign up to austerity‘ might mean either of the following:
Q1a) Should Labour embrace fiscal tightening now, as we teeter on the edge of a triple dip recession?
A) No. As we said a year ago, and in ITBL, this approach is failing. Indeed, not even the government is tightening fiscal policy now, which is why the deficit is rising. They’ve done it arse about tit, and are spending on the wrong things: too much current and welfare spending, not enough infrastructure, capital and industrial support.
If I were in power now, I think there’d be room for a fiscal stimulus. But Labour isn’t in power now, and almost certainly won’t be until 2015, and this is important, and we’ll come back to this point.
Q1b) Should Labour embrace a reduction of spending when growth is established and set out more clearly how it would achieve this, both in terms of structures and priorities for spending and taxation policy?
Yes, it should. This is the whole argument of in the Black Labour. [↩]
- There is a reasonable debate about what constitutes “good times” during which deficit reduction should be undertaken: I suspect that the fiscal policy boundaries will be set, not so much by the UK rate of GDP growth, but by a combination of UK growth rates, growth elsewhere, whether prices for UK debt stays low when other economies grow, and so on. [↩]